Many search engine services, such as Google, Yahoo! and MSN, provide for searching for information that is accessible via the Internet. These search engine services allow users to search for web pages and other Internet-accessible resources that may be of interest to users. After a user submits a search request that includes search terms, the search engine service identifies web pages that may be related to those search terms. To quickly identify related web pages, the search engine services may maintain a mapping of keywords to web pages. This mapping may be generated by “crawling” the web (i.e., the World Wide Web) to identify the keywords of each web page. To crawl the web, a search engine service may use a list of root web pages to identify all web pages that are accessible through those root web pages. The keywords of any particular web page can be identified using various well-known information retrieval techniques, such as identifying the words of a headline, the words supplied in the metadata of the web page, the words that are highlighted, and so on. Some search engine services can even search information sources that are not accessible via the Internet. For example, a book publisher may make the content of its books available to a search engine service. The search engine may generate a mapping between the keywords and books. When a search engine service receives a search request that includes one or more search terms, it uses its mapping to identify those information sources (e.g., web pages or books) whose keywords most closely match the search terms. The collection of information sources that most closely matches the search terms is referred to as the “search result.” The search engine service then ranks the information sources of the search result based on the closeness of each match, web page popularity (e.g., Google's page ranking), and so on. The search engine service then displays to the user links to those information sources in an order that is based on their rankings.
Some search engine services do not charge a fee to the providers of web pages for including links to their web pages in search results. Rather, the search engine services obtain revenue by placing advertisements along with search results. These paid-for advertisements are commonly referred to as “sponsored links,” “sponsored matches,” or “paid-for search results.” A vendor who wants to place an advertisement along with certain search results provides a search engine service with an advertisement and search terms. When a search request is received, the search engine service identifies the advertisements whose search terms match those of the search request. The search engine service then may display some of the advertisements along with the search results. If more advertisements are identified than will fit on the first page of the search results, the search engine service may select to display on the first page advertisements based on some criterion such as bid amount. In general, a search engine service or other advertisement placement service will display advertisements with higher bid amounts more prominently. For example, a list of sponsored links may be ordered by bid amount, the advertisement with the highest bid amount may be displayed in a prominent location (e.g., top of a web page), an advertisement with a high bid amount may be highlighted, and so on. The search engine services can either charge for placement of each advertisement along with search results (i.e., cost per impression) or charge only when a user actually selects a link associated with an advertisement (i.e., cost per click).
A web site provider may place advertisements for the web site with order placement services such as search engine services. As an advertiser, the provider of a web site would like to maximize the effectiveness of advertising dollars used to pay for advertisements. Thus, advertisers try to identify keyword and advertisement combinations that result in the highest benefits (e.g., most profit) to the advertiser. Many techniques have been developed to identify keywords that may be appropriate for advertising various items. For example, some techniques analyze “clickthrough logs” to identify keywords of search requests submitted by users and the items of sponsored links that the users selected. If many search requests with a common keyword result in users selecting sponsored links for the same item, then a vendor may want to place an advertisement for that item or for the category (e.g., DVDs and books) of that item with results of search requests that contain that search term.
Some techniques also select search terms based on a “conversion rate” for a search term and an item. A conversion rate may measure the percentage of clickthroughs to the item resulting in an actual purchase of an item. Conversion rate, however, is more generally the percentage of clickthroughs that result in some desirable benefit to a vendor or an organization. For example, the conversion rate for an insurance company may be a measure of the percentage of clickthroughs that result in the user requesting a rate quote.
To maximize the effectiveness of their advertising dollars, advertisers may use various techniques to determine the bid amount for a particular keyword. An advertiser may want to place an advertisement in a less prominent position on the first page of a search result, rather than a more prominent position on the first page, under the assumption that the additional cost for the more prominent position outweighs its benefit. If the advertisement is placed in a more prominent position, then the advertiser is bidding too much and the advertiser's advertising expenses will increase. In contrast, if the advertisement is placed on the second page, rather than the first page, the advertiser is not bidding high enough. In such a case, because only a few users may actually see and select the advertisement, the advertiser may lose profitable sales that might have been made if the bid amount had been only slightly higher.
One technique for determining the bid amount for a keyword factors in a forecasted conversion rate, average revenue from a sale, and an advertising expenditure as a percentage of revenue. As an example, the average sale price for conversions initiated by selecting advertisements displayed based on queries that included the keyword may be $20. Also, an advertiser may want to allocate 5% of revenue for advertising expenses, and the forecasted conversion rate may be 10%. The advertiser may calculate the bid amount by multiplying the average sale price by the advertising expenditure percentage by the forecasted conversion rate to give a bid amount of $0.10 (i.e., $20*5%*10%) in this example.
Since the profitability of different categories of products may vary greatly, an advertiser may want to use different advertising expenditure percentages for different categories. For example, the profit margin on video games may be higher than the profit margin on DVDs. If so, an advertiser may want to use an advertising expense percentage of 10% for video games, but only 5% for DVDs. When an advertiser submits an advertisement for a product in a certain category or a category of products for a keyword, the advertiser uses the advertising expense percentage for that category to calculate the bid amount.
A difficulty with such an approach is that users who select the advertisement to initiate a session with the advertiser may purchase products in categories very different from the category of the advertisement. For example, a user interested in a Pokémon DVD may enter a query that includes the keyword of “Pokémon.” If the advertiser calculated the bid amount for the keyword “Pokémon” based on the video game category, then the advertiser will have bid too much for the keyword that leads to a DVD sale. In contrast, if the user was actually interested in a video game, but the advertiser submitted a bid based on the DVD category, then the advertiser would be bidding less than desired for advertisements that lead to a video game sale. As a result, the advertisement may not be placed prominently (as other advertisers may be bidding higher amounts) and potential profitable sales may be lost.